What do equity issuances signal? A study of equity issuances in the UK before
and during the financial crisis
Gishan Dissanaike
University of Cambridge, Judge Business School
Jonathan Faasse
University of Cambridge, Judge Business School
Ranadeva Jayasekera
University of Southampton, Southampton Management School
April 2014
Abstract
The financial crisis provides an ideal setting to study how quality signaling by firms, and
information asymmetries, might explain the stock price reactions around seasoned equity offerings.
The heightened information asymmetry levels during the GFC should have increased the
importance of issuance quality and information asymmetries in explaining announcement returns.
However, we document new and, in some cases, surprising findings, using a sample of 700 UK
seasoned equity offerings between 2003 and 2012: (1) Contrary to expectations, announcement
returns during the crisis were driven less by signaling and asymmetric information effects and more
by macroeconomic conditions and general uncertainty. (2) In constrained capital markets, firms that
were able to move more quickly to raise significant amounts of capital, made the capital-raising
environment more challenging for firms that followed, such that the latter had to incur additional
costs. (3) Contrary to the traditional view that the low book-to-market ratios may proxy for
overvaluation and thus lower announcement returns, we found a negative relationship during the
crisis period. The latter is consistent with the view that book-to-market ratios may also proxy for a
distressed firm effect which may have dominated the conventional ‘market timing’ effect during the
GFC. (4) Announcement returns were strongly positive for many firms at the peak of the crisis,
possibly because the market was relieved to see that equity issues might potentially save firms from
insolvency; an equity issuance could, in such circumstances, be a positive signal, even though
equity issues are conventionally seen as negative signals. Overall, our paper documents fresh and
surprising results about equity capital-raising during the GFC, and also offers insights for corporate
finance that are of interest beyond the current crisis.
Keywords: Rights issues, Private placements, Financial crisis, Quality signaling, Information
asymmetry, Market timing.
What do equity issuances signal? A study of equity issuances in the UK before
and during the financial crisis
1. INTRODUCTION
Capital raisings in the form of rights offerings, open offers and placings have inherent signalling
potential regarding the quality of the issuing firm, and the different issuance methods can induce
different types of reactions from the market. A number of theoretical models have been developed
within this framework (e.g., Heinkel & Schwartz, 1986; Eckbo & Masulis, 1992; Balachandran,
Faff & Theobald, 2008). The choice of issue type, the issue price discount, and whether or not an
issue is underwritten are all possible signals of firm quality. When an equity offering is announced,
these quality-related phenomena will have implications for the magnitude of the price reaction
around the announcement period, and a number of empirical studies have investigated these
announcement effects. However, there has been little or no work done on the market reactions to
equity capital raisings during periods of financial crisis, and certainly no work done on the UK
market during the current GFC. The information asymmetries between firms and investors were
arguably elevated during this GFC period, owing to uncertainty surrounding funding and liquidity,
business fundamentals and macroeconomic uncertainty. This problem was even more pronounced
among financial firms, where balance sheet opacity and uncertainty surrounding asset valuation and
liquidity might have exacerbated this type of information asymmetry.
This paper uses a sample of 700 seasoned equity offerings (SEOs) by 377 UK firms to study
the announcement returns for UK companies that raised capital through rights offerings, open
offers, and placings. Our ten year study includes the period both before and during the financial
crisis.
Our main research questions are as follows: What are the announcement effects for UK
companies that raised equity capital during the financial crisis? Did heightened information
asymmetry levels during the GFC increase the importance of issuance quality and firm-level
information asymmetry in explaining announcement returns OR did the standard relationships
breakdown or weaken considerably in response to the financial crisis?
Our work is informed by extant theory and empirical work: In line with previous studies
(see Barnes & Walker, 2006; Slovin, Sushka & Lai, 2000), we investigate the role of quality
signalling and information asymmetry in explaining the announcement returns for SEOs, using
variables such as the following: the issue price discount, whether or not the issue was underwritten,
relative size of issue, firm size and whether the proceeds of the issue were for acquisition purposes.
Such variables reflect firm and issuance characteristics and are assumed to signal information
regarding the quality of the offering to the market. Information asymmetry occurs when managers
possess better quality information than external market participants and thus can profit from their
information at the expense of outsiders. Thus, previous studies show a price reaction to equity
issuances, in the presence of information asymmetry, where an average drop in the stock price of
approximately 3% is observed at the announcement of a new issue (see, for example, Asquith &
Mullins, 1986; Masulis & Korwar, 1986; or Mikkelson & Partch, 1986). Dierkens (1991)
demonstrates the relevance of information asymmetry for the equity issuance process, and
concludes that increases in information asymmetry significantly increase the drop in price observed
at the time equity issues are announced, and that firms ‘time’ their equity issue announcements
when the information asymmetry is relatively low. We also investigate whether the historical
evidence on market timing, where firms tend to issue equity when they are overvalued, persists
during the GFC (see Baker & Wurgler, 2002; DeAngelo, DeAngelo & Stulz, 2010).
Next, we investigate a subsidiary and related hypothesis, conditional upon the capital
markets being severely constrained during the GFC. We refer to it as the constrained market
hypothesis: It is plausible to assume that capital was a scarce resource, especially during the GFC.
In a constrained capital environment, those firms that are able to move more quickly to raise
significant amounts of capital may make the capital-raising environment more challenging for other
firms that follow. ‘Followers’ may have to incur additional costs (perhaps in the form of a higher
discount, or a negative return) in order to compete for scarce capital. We investigate the latter
hypothesis and also the related hypothesis that these costs should matter MORE in the case of open
offers vis-à-vis rights offers, because the rights to purchase new shares in an open offer are NOT
transferable.
The main findings of our paper are as follows: (1) Contrary to our expectations, signalling
quality and firm-level information asymmetry effects were not as important in explaining
announcement returns in the crisis period, even though information asymmetries will have been
accentuated. Instead, the announcement returns during the crisis were driven more by
macroeconomic conditions and general uncertainty. (2) We find evidence consistent with the
constrained capital markets hypothesis. Ceteris paribus, it can be costly to be a follower, especially
in the case of open offers, because the rights to purchase new shares are not transferable. (3)
Contrary to the view that a low book-to-market ratio may proxy for over-valuation and thus lower
announcement returns (see Baker & Wurgler, 2002), we find a negative relationship during the
crisis period. The latter is consistent with the view that B/M may also proxy for some sort of
distress risk (Fama & French, 1995), where firms with higher sensitivities to financial distress react
more negatively when they signal the need for new capital. (4) When credit markets dried up during
the GFC, as indicated by tightening LIBOR-OIS spreads, companies resorted to more equity
issuances. And, in 2009, a year of high equity issuances, we found that the announcement returns
were actually strongly positive for many firms. We attributed the latter to the climate of low
expectations in 2009, where the market was expressing relief that an equity issue may potentially
save a firm from insolvency.
The structure of the paper is as follows: Section 2 develops our hypotheses. Section 3
describes our data; section 4 discusses the explanatory variables and some descriptive statistics;
section 5 contains the main empirical results; and section 6 is the conclusion.
2. HYPOTHESES
In this paper we focus on testing three separate but related hypotheses. Firstly, we use the financial
crisis as a setting in which to study the hypothesis that firm level information asymmetry and
quality signals are related to market reactions to announcements of equity issues (e.g. Dierkens,
1991; Slovin et al, 2000; Barnes & Walker, 2006). Due to arguably heightened levels of information
asymmetry between firm managers and shareholders (and also due to the increased importance of
information asymmetry - increased likelihood of bad news, catastrophic firm-level events, and
economic uncertainty) we predict that firms with higher levels of information asymmetry will be
more heavily penalised by the market for issuing equity. We test this by studying announcement
returns in relation to information asymmetry measures including firm size, idiosyncratic volatility,
and bid-ask spreads, as well as signals of issue quality: issue price discount, whether the issue is
underwritten, size of issue relative to firm size and use of proceeds.
Additionally, we aim to test the effect of a shift in the supply curve of (equity) capital on
firm's issuance costs - we term this the "constrained market hypothesis". Although some research
has looked at the impacts of the macroeconomic environment on issuance behaviour (e.g.
Korajczyk & Levy, 2003), this specific question of what happens to firm issuances when the
supply-side itself becomes constrained seems to have been largely unexplored in the academic
literature. When markets are functioning normally, market participants are typically able to absorb
new equity issuances, subject to price. However, at times when capital is constrained (due to a shift
in the supply curve or a change in risk preferences - withdrawals from funds, personal financial
reasons, and because investment funds do not typically hold a lot of cash, and may be unwilling to
sell investments at depressed market prices to raise cash), firms issuing equity "late in the game"
may be at a distinct disadvantage relative to their peers, especially for large equity issues. A
corollary of this hypothesis is that some firms will have something akin to a "first-mover
advantage". We test this hypothesis by studying the interaction between the amount of recent equity
issues in the market with the size of individual issues. This interaction captures large issues that are
made into a saturated market, where other firms have already made substantial issuances. As a
further test, we restrict our analysis to large issues, where constraints are likely to bind, and
compare issue characteristics and market reactions conditional on the absolute amount of equity
issuances in the preceding three months.
Finally, we use the financial crisis as a setting in which to test the market timing hypothesis,
that firms opportunistically issue equity when they are overvalued (see Baker & Wurgler, 2002;
DeAngelo, DeAngelo & Stulz, 2010). Equity issuances are typically associated with run-ups in
share price, or high valuations (proxied by book-to-market ratios), and viewed as being pro-cyclical
(Korajczyk & Levy, 2003). In this paper, both book-to-market ratios and stock returns prior to issue
announcements are used as proxies for relative valuation. We are concerned with testing whether
equity issuance announcement returns contain any evidence of such managerial opportunism during
the financial crisis: in a negative macroeconomic environment, do firms with higher relative
valuations experience more negative market reactions to equity issuance, as would be predicted by a
market timing story? Or conversely, does the market view higher valuations as a sign of quality
during the crisis?
3. UK EQUITY ISSUANCES
The evidence in this paper is based on a sample of 700 rights issues, open offers, and placings by
377 firms, conducted on the London Stock Exchange over a ten year period between 2003 and 2012.
Sample issuances are initially identified using Thomson ONE Banker (similar to SDC Platinum):
we search for all follow-on equity offerings for firms located in the UK; we then delete issues if
there were no new shares issued, if the exchange listed was anything other than London (e.g. we
exclude issuances for firms listed as being on the AIM or PLUS markets, and any firms on overseas
markets), if the securities issued were anything other than Common or Ordinary shares (e.g. ADS,
ADR, Class A shares, Units etc), and finally if the issuing firms were venture capital trusts (VCTs)
or investment trusts. Table 1 provides details about the various exclusions we make to arrive at our
final sample. As a final step, we match the individual data-points from Thomson ONE Banker by
transaction. This is necessary because Thomson ONE Banker disaggregates issuances into their
various components. For example, an Open Offer and Placing would be recorded by two entries:
one for the Open Offer component, and one for the Placing component. We manually match these
individual items in the dataset to produce an aggregated set of transaction-level data. Additionally,
there are other irregularities in the dataset which need to be manually corrected. For instance, the
rump placement of a rights issue would be recorded as a placing. If we were to naively aggregate
this information into a single transaction, we would record it as Rights Issue and Placing (a
relatively rare combination), when in fact it is simply a Rights Issue (the rump placement is a byproduct of the underwriting process).1
For each of our transactions, we collect from the Thomson ONE Banker database the offer
type, announcement date, total offer proceeds in pounds sterling, offer price in pounds sterling, use
of proceeds, and underwriting status. Due to irregularities in the raw data, we manually check
announcement dates, offer proceeds, offer price and underwriting status against the Regulatory
News Service (RNS) announcements for all rights issues and open offers in our sample.
The main dependent variable in our tests is the cumulative abnormal return (CAR) over the
announcement period for each equity issuance. We estimate normal returns with a market model,
using [-260,-11] as the estimation window. Because there are a number of small firms in our sample
which may be subject to infrequent trading, we use Dimson (1979) betas with n=2 (two leads/lags
of market returns). Our standard event window is [-1,1]. If there are fewer than 40 trading days of
data before the announcement date, then we set CAR for that transaction to missing. All stock and
market returns are calculated as the first difference of the log of the stock total return index, and the
1
Economic considerations, which might influence the choice of various issue types, are not directly applicable to the
UK, as a result of the fundamentally different institutional settings in the UK. Burton, Helliar and Power (2005)
surveyed UK CFOs about the choice between placings, rights and open offers and conclude that the choice between
placings on one hand, and rights (and open offers) on the other hand comes down to (1) urgency in raising capital; (2)
level of tolerance with regards to issue costs; (3) existing and desired shareholder structure; and (4) size of the issue
(due to pre-emptive rights in the UK).
FTSE All Share index respectively, from Datastream. We are able to match nearly all Thomson
ONE Banker transactions to Datastream by SEDOL code; any remaining firms are matched by hand.
4. EXPLANATORY VARIABLES AND DESCRIPTIVE STATISTICS
4.1 Explanatory Variables
Appendix 1 describes the explanatory variables used in this study and how we construct them. All
market data and accounting data in this section come from Datastream and Worldscope.
4.2 Descriptive Statistics for Issuances
Basic descriptive data on our equity issuance sample are presented in Table 2. We present statistics
for our entire sample, as well as by issue type: the three main groups are placings (P), open offers
and open offers with placings (OO & OOP), and rights issues and rights issues with placings (RI &
RIP). We also present open offers only (OO) and rights issues with placings (RIP) separately,
because these are unusual issuance combinations to observe – typically rights issues occur by
themselves; and open offers occur with a placing, in which the open offer is the clawback
component of the placing (Burton, Helliar, & Power, 2005). Table 2 also shows the distribution of
the different types of issues by year, in order to highlight any time series patterns in issuance
behaviour.
Placings (P) are by far the largest component of our sample, comprising 441, or 63%, of
total transactions. Open offers and placings (OO & OOP) are a distant second, with 151 transactions
(22% of the sample). Rights issues (RI & RIP) comprise 15% of the sample, with 108 transactions.
On average, RI&RIP are the largest issues in absolute terms, with mean offer proceeds of £776m
(median £140m). These are more than twice the size of OO&OOP, with mean offer proceeds of
£333m (median £27m). Placings have mean offer proceeds of £58m (median £7m). In terms of the
relative size of the issue (offer proceeds / firm market capitalization), OO&OOP are by far the
largest with a relative size of 116% (median 46%). RI&RIP are slightly smaller at 47% (median
32%). Placings are the smallest, with a mean relative size of 16% (median 9%). Finally, the average
size of the issuing firm (market capitalization) is much larger for rights issues compared to the other
offer types: RI&RIP have a mean firm market capitalization of £2,976m (median £366m),
compared to £1,061m (median £69m) for placings, and £669m (median £61) for OO&OOP.
Based on the time series patterns in equity issuance in Table 2, it is clear that 2009 was a
very unusual year. Aside from 2009, the total number of issuances does not vary hugely from year
to year – ranging from a low of 42 in 2006 to a high of 83 in 2004, with a mean of approximately 60
per year. In 2009 alone, there were a total of 144 issuances in our sample. Of these, there was an
unusually high proportion of RI&RIP – 27% compared to a full sample average of 15%. Conversely,
placings were under-represented, with near-minimum of 49% of the total sample. The increase in
the popularity of rights issues during 2008 and 2009 is interesting given the view that rights issues
in the UK were suffering from a decline in popularity (e.g. Armitage, 2007). While the exact causes
behind this decline seem unclear, the financial crisis obviously triggered a resurgence in the
popularity of rights issues, perhaps due to the sheer size of capital demands.
4.3 Univariate Analysis of Returns
Table 3 presents a univariate analysis of cumulative abnormal returns for equity issuance
announcements over our sample period. Panel A shows results for the full sample from 2003-2012.
RI&RIP had an average CAR of (negative) -6.64%, significant with a t-statistic of -2.96.
Conversely, placings had an average CAR of (positive) 1.41%, significant with a t-statistic of 2.02.
Like rights issues, OO&OOP had a negative average CAR of -2.32%, although this was not
statistically significant.
Panel B shows the analysis with the sample split into two groups, 2003-2007, which we
term the “pre-crisis” period, and 2008-2012, which we term the “crisis” period. This dichotomy is
intended to capture any differences in issuance characteristics that arose as a result of the global
financial crisis and its associated fallout. For all issue types, the crisis CARs are substantially lower
(in an economic sense) and the issue price discounts are substantially higher compared to the precrisis CARs. These differences are all statistically significant, with the exception of OO&OOP,
where the p-value for a Welch t-test for difference in CAR means is equal to 0.12 (unreported).
Naturally, we also observe a higher proportion of negative returns for all issue types.
Panel C shows the analysis with the sample split according to the level of the LIBOR-OIS
spread at the time of the issuance. As an extension to the above “pre-crisis versus crisis” analysis,
instead of (arbitrarily) splitting the sample, we compare our variables of interest based on LIBOROIS spreads. LIBOR-OIS spreads are a measure of liquidity and general health in the credit markets.
When credit markets become illiquid (“closed for business”), firms which might otherwise have
issued or renewed debt may be driven to the equity markets instead (by way of a substitution effect:
where debt and equity are substitutes, a reduced supply of capital in debt markets could affect the
demand, and thus the price, for capital in equity markets). We select a cut-off value of 50 basis
points. Figure 1 shows that this unambiguously delineates “regular” market conditions from
obviously “abnormal” conditions. For RI&RIP and OO&OOP, the results draw us to the same
qualitative conclusions as for Panel B, with the CAR and issue price discount for the high LIBOROIS issuances being statistically and economically different from the low LIBOR-OIS issuances
(Welch t-test p-value for OO&OOP reduces from 0.12 to 0.09). However for placings, there is no
statistical difference between CARs or discount for each subsample. This suggests that placings are
not subject to the same sensitivity to broader economic conditions as other types of offerings – a
recurrent theme in our findings.
5. RESULTS
5.1 Quality Signalling and Information Asymmetry
Our main results consist of panel regressions of announcement returns on the explanatory variables
related to our various hypotheses. This follows the methodology of other related empirical papers
such as Slovin et al (2000) and Balachandran et al (2008). Our reported t-statistics are based on
White (1980) standard errors.
Tables 4-7 show the full-sample results from various specifications of our cross-sectional
model, for rights issues and open offers combined (COMB), RI&RIP only, OO&OOP only, and
placings, respectively. Each different model specification contains our base “quality signalling”
variables, and subgroups of explanatory variables based on various hypotheses or controls. Our
quality signalling variables consist of issue price discount (DISC), whether or not the issue was
underwritten (UNDERWRIT), relative size of issue (OP/MV), firm size (LOGMV) and whether the
proceeds of the issue were for acquisition purposes (M&A Flag). These variables are common to a
number of other studies (e.g. Barnes & Walker, 2006; Slovin et al., 2000) and reflect firm and
issuance characteristics assumed to signal some information regarding the quality of the offering,
and its effect on extant shareholders. The relationship between our quality signalling variables and
announcement returns over the full sample period is generally consistent with prior research. Model
(1) is our base model; Models (8) and (9) contain all the explanatory variables (LIBOR-OIS and
VIX are highly correlated, thus we do not include them both in the same regression due to
multicollinearity issues).
Models (2) and (3) control for the level of LIBOR-OIS spread and the VIX index
respectively; these variables are proxies for macroeconomic conditions (credit market functioning,
asset value uncertainty) and allow us to comment on how economic conditions affect announcement
returns. For COMB and OO&OOP, the level of VIX is significantly negatively related to
announcement returns; for RI&RIP and placings it is not significant. The LIBOR-OIS spread is
significant only for OO&OOP.
Model (4) contains a number of firm characteristic control variables. We allow the
coefficients on leverage (Debt-to-Equity) and profitability (Negative earnings) to vary for financial
firms, due to the prominent role of financial firms during our sample period, and because certain
characteristics (especially leverage) have a different meaning for financial firms. The relationship
between book-to-market and announcement returns is discussed in Section 5.3.
Lack of profitability (negative EBIT, or negative net income for financial firms) is also a
negative signal to the market – for non-financial firms only. Announcement returns for nonfinancials are approximately 4% lower for placings, and 8% lower for COMB when profitability is
negative. For financial firms, the effect is essentially cancelled out. We posit that this occurs
because banks and financial firms, which are typically more opaque than non-financials, especially
during crises (Flannery, Kwan, & Nimalendran, 2013) do not convey as much useful information
through “bottom line” accounting numbers, and thus an accounting profitability indicator is less
meaningful.
Model (5) contains two direct proxies for information asymmetry – bid-ask spreads and
idiosyncratic volatility. Because theories about equity issuance signalling (ergo announcement
returns) are typically based on information asymmetry between the firm and the market, we
consider it appropriate to test the relationship between direct measures of information asymmetry
and the consequent signalling effect. Overall, we do not find any significant relationship between
bid-ask spreads and announcement returns. On the other hand, idiosyncratic volatility (residual
volatility based on a market model) shows a strong relationship with announcement returns.
RI&RIP and placings both exhibit a positive and statistically significant relationship with
announcement returns; for COMB and OO&OOP the coefficient has a positive sign, but is not
significant. The traditional view (and our hypothesised relationship) of idiosyncratic volatility in
this context is that it proxies for information asymmetry and thus should have a negative
relationship with announcement returns (e.g. Dierkens, 1991; Myers & Majluf, 1984). We have
confirmed that this result is not the result of outlier observations; that the effect persists in the full
model specifications (8) and (9) is somewhat perplexing.
The overall explanatory power of our models, measured by adjusted R² is mixed: for COMB,
RI&RIP, and OO&OOP (the pre-emptive offerings) the adjusted R² is around 20% for the full
model specification; for placings this reduces to 9%. There seems to be a fundamental difference
between determinants of market response to placings by themselves, and other types of equity
issuance. Given the strong preference for placings exhibited by practitioners (Burton et al, 2005),
we might assume that because rights issues and open offers are thus a “second choice” (either
because of the size of the issue or other constraints), that they are also on average of a lower quality.
Hence the lack of explanatory power for the placings sample may simply occur because there is less
dispersion in quality for the placings sample itself.
We now discuss how these effects vary in the crisis (2008-2012) period compared to the
pre-crisis period (2003-2007), by looking at panel regression results for these two subsamples.
Tables 8 and 9 show the pre-crisis and crisis results for COMB; tables 10 and 11 show the results
for RI&RIP; tables 12 and 13 show the results for OO&OOP; tables 14 and 15 show the results for
placings.
The most telling result is the vastly superior explanatory power for our models for the precrisis period. In the pre-crisis period, the adjusted R² for COMB, OO&OOP, and RI&RIP ranges
from 39%-49% (for model (8) – full model specification). For the crisis period, the comparable
range of adjusted R² values is -1%-12%. It is quite clear that the issue- and firm-specific
characteristics that explain announcement returns in the pre-crisis period are substantially less
important from 2008 onwards. The difference for placings is far less pronounced, with 11% for precrisis and 8% for crisis. Our initial expectation that quality signalling would be more important
during the crisis was incorrect; or at least valuable quality signals are far more difficult to detect
after 2008.
One of the primary quality signalling variables, DISC, is higher both in magnitude and
significance for COMB, RI&RIP, and OO&OOP in the pre-crisis period. For placings, the effect is
broadly unchanged in magnitude, but is in fact more significant in the crisis period.
M&A Flag, the variable indicating that the issue proceeds were for acquisition purposes,
becomes wholly insignificant in the crisis period. In the pre-crisis period, is it significant and
positive for COMB and OO&OOP.
The effect of the VIX level and LIBOR-OIS spreads are broadly weaker for all issue types
in the crisis period. The only significant relationship in the crisis period is for VIX for COMB and
OO&OOP. Leverage is marginally significant for non-financial firm placings in the pre-crisis
period. The coefficients on leverage for financial firms are mixed in sign and significance for the
pre-crisis period. In the crisis period, we unsurprisingly observe a significant negative relationship
between financial firm leverage and announcement returns for the COMB sample. Poor profitability,
indicated by negative earnings, was a broadly negative signal in the pre-crisis period. By
comparison, there is no discernible relationship between profitability and announcement returns in
the crisis period, except for placings.
Our counter-intuitive result for idiosyncratic volatility, whereby it is positive related to
announcement returns, is largely restricted to the pre-crisis period. The sign is consistently positive,
and statistically significant for all samples except placings. In the crisis period, this relationship
becomes negative for COMB and OO&OOP (only significant for OO&OOP) – this is the
relationship we would expect based on idiosyncratic volatility as a proxy for information
asymmetry. Our unexpected relationship remains for the placings sample, however.
5.2 Testing the Constrained Market Hypothesis
Model (6) in tables 4-7 tests our constrained market hypothesis. The variable IIR x Offer Proceeds
is intended to capture “large” issues made into a “constrained” market. When peer firms have made
a lot of equity issuances relative to the general market level of equity issuances (i.e. this variable
effectively controls for changes in overall issuance volumes), IIR will be high. By interacting this
variable with the absolute size of the issuance, we identify a variable that will be large when a firm
is making a large issue in dollar terms, after its peers have already made a disproportionately high
relative amount of issuances. For the full sample period, IIR x Offer Proceeds is only significant for
OO&OOP (though the effect is somewhat reduced when we include all other variables). The sign of
the coefficient is also negative. This suggests that firms suffering the “constrained market effect”
have a more negative announcement return on average 2. How does this translate into economic
reality? We interpret the result to mean that capital is more expensive for “follower” firms: existing
shareholders suffer a disproportionately larger cost in order to raise new capital. One can think of it
as the firm having to offer more generous terms to induce new investment. That the result is
restricted to the open offer sample also supports our constrained market hypothesis: because
subscription rights are non-transferable, it is not possible for other sources of capital (e.g.
arbitrageurs) to substitute demand from existing shareholders. Thus open offers are essentially more
constrained than rights issues, where capital can flow more freely.
Model (6) in tables 8-15 shows results split into pre-crisis and crisis periods, for the
different issue types. As in the full sample, we find that our “constrained market hypothesis”
variables are significant only for OO&OOP, and only for the crisis period. For rights issues and
placings, the prior issuance variables do not appear to matter either in the pre-crisis or crisis periods.
This offers further supports our hypothesis – previously we argue why it applies to open offers more
than other issue types; that it is restricted to the crisis period, in which capital was arguably scarcer,
is consistent with our explanation.
Table 16 contains additional univariate tests of our constrained market hypothesis. As our
aim is to test whether very large issuances affected subsequent issues (in the sense that when the
supply of capital may be limited, there could exist a first-mover advantage), we remove all “small
issues” from our sample: from the full sample of 700 issues, we take all issues whose proceeds are
greater than the mean proceeds amount for the whole sample. This reduces the size of the sample
from 700 to 81.
In order to classify whether an issuing firm is a “first mover” or a “follower”, we calculate a
variable called SUMPRIOR, which is the sum total of offer proceeds of peer firms (same 1-digit
SIC code) over the prior three months. We use three different cut-off values for SUMPRIOR (0,
2
It is difficult to interpret the economic magnitude of this effect, as the IIR x Proceeds variable is dependent both on the
size of the issue and the amount of issues that have preceded it. We carry out another test of this hypothesis below,
which provides additional evidence in support of our hypothesis, as well as an estimate of the size of the effect.
£100m, £200m); any issue that falls below the cut-off is treated as a “first mover” and any issue
where SUMPRIOR is greater than the cut-off is treated as a “follower”. Although the “follower”
group contains a higher proportion of issuances from 2009 (55% versus 30% for “first movers”),
our results are qualitatively unchanged by removing the 2009 issuances.
For the £100m and £200m SUMPRIOR groups, the announcements CARs are significantly
lower for followers, on the order of 11%. The Mann-Whitney tests show no significant difference
between discount, offer proceeds, or firm size. For the SUMPRIOR = 0 group, we again observe an
11% lower return for followers, although is not statistically significant (our first mover sample here
is only 6 issues). These results suggest that when a firm is making a large issuance (in absolute
terms), the capacity of the market (i.e. what issues have happened prior) is important in determining
the reaction to the issuance. The pattern of announcement returns that we observe is not generally
consistent with an information asymmetry story in which the event of a firm's issuance reduces the
information asymmetry for related peer firms that come to market in subsequent periods (Iqbal
(2008) documents evidence on sequential issuances within firms).
5.3 Announcement Returns, Valuation, and Prior Returns
Prior studies typically view equity issuances made by firms with relatively low book-to-market
ratios (i.e. “glamour” or “growth” firms) as negative signals to the market. The market timing
argument suggests that firms may issue equity as a result of perceived overvaluation 3 (e.g. Baker &
Wurgler, 2002), Managers admit to timing the market. Graham and Harvey (2001) find that twothirds of CFOs agree that the amount by which [their] stock is undervalued or overvalued was an
important consideration when issuing equity. In that survey, equity market prices are regarded as
being one of the more important factors in the decision to issue common stock. Alternatively,
Dierkens (1991) suggests that low book-to-market firms have more intangible (opaque) assets, and
3
Seasoned equity issues coincide with high valuations in Taggart (1977), Marsh (1982), Asquith and Mullins (1986),
Korajczyk, Lucas, and McDonald (1991), Jung, Kim, and Stulz (1996), and Hovakimian, Opler, and Titman (2001).
thus higher information asymmetry and a more negative market reaction to equity issuances.
Contrary to these past findings, in the context of the financial crisis we find the opposite
relationship: a higher book-to-market ratio (i.e. “value” firms) is associated with lower
announcement returns. During the crisis period, we observe a strong negative relationship between
book-to-market and announcement returns for COMB (Table 9), and a consistently negative sign
for all other samples (Tables 11, 13, 15). This is consistent with the view that B/M proxies for some
sort of distress risk (Fama & French, 1995) - firms with higher sensitivities to financial distress (or
closer to being in financial distress) react more negatively when they signal a need for new capital.
This argument is supported by untabulated results in which we find that the negative returns
associated with high book-to-market firms are stronger in firms with low return on assets, a
fundamental measure of firm performance associated with distress (Fama & French, 1995).
In the pre-crisis period, there is a positive and significant relationship between book-tomarket and placings (Table 14), consistent with a market timing story in which book-to-market
signals under- or overvaluation to the market. The appearance of the negative coefficient on bookto-market during the crisis suggests that any relative valuation signal provided by the variable is
trumped by a relative distress signal during the crisis period.
In a similar vein to book-to-market, stock returns prior to equity issuances may proxy for
overvaluation and thus create an incentive for a manager to issue shares. A number of prior papers
(e.g. Balachandran et al, 2008; Barnes & Walker, 2006; DeAngelo et al, 2010) use prior stock
returns to control for either reaction to, or choice of, equity issuance. For example, (Denis, 1994)
find that firms are more likely to issue equity following a run-up in share price (explained either by
an over-valuation model (Myers & Majluf, 1984), or by firms exploiting new investment
opportunities (Dierkens, 1991; Pilotte, 1992). In our regression tests, we control for prior stock
returns, but also allow for an asymmetric effect depending on whether the return is positive or
negative.
We consistently find that the relationship between returns before the issue and
announcement returns is negative for negative run-up returns, and positive (but rarely significant)
for positive run-up returns. These relationships hold for both the full sample, and the sample
segmented into pre-crisis and crisis periods, although the effect is much stronger in the crisis period.
This implies that, ceteris paribus, more negative run-up returns are associated with higher
announcement returns. We view this as either an information leakage effect (returns that would
otherwise have accrued to the announcement are impounded in share prices earlier) or an overlynegative expectations effect (some firms are viewed so negatively by the market that an equity
issuance and the hope of continuing as a going concern are positive news). As we discuss in Section
5.4 below, we prefer the latter explanation, on the basis that a rumour-based story is unconvincing
for the entirety of our sample. This supports the idea that for some firms, the mere fact of an equity
issuance was a positive signal, given the expectations already impounded into the market price. It
seems unlikely that issuances preceded by negative stock returns would be driven by market timing.
For firms that do experience a positive run-up in share price prior to the announcement of an equity
issue, we never observe the negative relationship between prior returns and announcement returns
that we might expect according to the market timing hypothesis.
In unreported tests, we confirm this result by creating separate variables for positive and
negative run-up returns to replace the Prior Return variable and associated dummy and interaction
terms. Full sample results show a positive relationship between positive run-up returns and
announcement CARs, and a negative relationship between negative run-up returns and CARs,
although the significance of the coefficients is mixed. For the pre-crisis, the effect is even more
muted, although both positive and negative run-up variables are significant for OO&OOP, and the
positive run-up variable is significant for RI&RIP. For the crisis period, the negative run-up
variables become large in absolute terms (still negative) and highly significant for COMB and
RI&RIP. While there seems to be some evidence of this asymmetric relationship between run-up
returns and announcement CARs for rights issues and open offers over the whole sample, it is
substantially stronger in the crisis period. Placings tend to behave differently – the negative prior
return variable is never significant, and the positive prior return variable is significant for both the
full sample and the crisis sample. Thus for placings, the evidence is consistent with traditional
agency views of investment opportunities and equity issuance (Jung, Kim, & Stulz, 1996), though
this does not hold for other offer types.
5.4 An observation about 2009 announcement returns
As discussed in Section 4.2, 2009 was an unusual year for equity issuances, with volumes
substantially higher than average. In untabulated results, we exclude any issues made in 2009 from
the Table 3 univariate analysis to assess whether the issuances in this particular year deviated
greatly from average. In all cases, the CAR is lower without 2009, and the discount is also lessened.
Although these differences are not statistically significant (not aided by the small sample sizes), in
economic terms the differences are large: focussing solely on the crisis period (Table 3, Panel B),
the CAR for RI&RIP drops from -10.5% to -14.6%; for OO&OOP, CAR drops from -6.9% to 12.3%; and for placings CAR drops from 0.5% to -1.2%. This analysis shows that compared to the
full crisis period, the 2009 CARs for all issue types were higher than average. Despite the 2009
issuances having larger discounts on average, the market response was still more positive. We
propose two related explanations for this observation. First, we have anecdotally observed 4 that
there was a lot of rumour about equity issuances in 2009. For example, a Telegraph article on 14
May 2009 names six relatively large UK-listed firms with rights issues “in the pipeline”, either
based on rumour or an analysis of the firms’ balance sheets and debt positions (Harrington, 2009).
These rumours may impound the expectation of an equity issuance into a firm’s share price and thus
dampen the return on the official RNS announcement. However we doubt that this “rumour”
explanation would be the case across the whole sample, nor does it explain why the 2009 issuances
have a higher proportion of POSITIVE announcement returns. Our preferred explanation of this
4 We made this observation during our data collection. In the process of manually checking announcement dates for
rights issues and open offers, on a number of occasions we found general issuance-related rumours for firms in our
sample in the days or weeks prior to their official announcement on the Regulatory News Service (RNS).
phenomenon is that market expectations regarding the prospects and financing of a large proportion
of firms were simply so low that the announcement of an equity issue was, on balance, a positive
signal. For example, it is quite feasible that if the market expected a firm to be unable to refinance a
large debt load because of, say, a combination adverse credit market conditions and recent poor
firm performance (perhaps implying insolvency or a costly restructuring), then the announcement of
a large equity issuance (thus allaying fears of insolvency) could be a strong positive signal,
notwithstanding prospective dilution for existing shareholders.
6. CONCLUSIONS
Firstly, contrary to our initial hypotheses, signalling quality and firm-level information asymmetry
effects were not as important in explaining announcement returns in the crisis period vis-à-vis the
pre-crisis period, even though there was good reason to suppose that information asymmetries will
have been accentuated during the GFC. The announcement returns during the crisis were driven
more by macroeconomic conditions and general uncertainty.
Secondly, we also investigated the constrained market hypothesis. That is, whether firms
that are able to move more quickly to raise significant amounts of capital (in a constrained market)
may make the capital-raising environment more challenging for other firms that follow, such that
the latter have to incur additional costs in the form of higher discounts, etc. We hypothesised that
these costs should matter MORE in the case of open offers vis-à-vis rights offers, because the rights
to purchase new shares are NOT transferable. Our findings were consistent with expectations: For
rights issues and placings, the prior issuance variables did not appear to matter either in the precrisis or crisis periods, but they did matter in the case of open offers made during the crisis period5.
That the latter result is restricted to the crisis period, in which capital was arguably more scarce, is
5
A recurrent theme in our results is the difference in response to various firm and issue characteristics between rights
issues and open offers (both “pre-emptive” offering types). We conclude based on our results that the nontransferability of subscription rights (in the case of open offers) matters; for the constrained market hypothesis, this is
clearly evident: when subscription rights are transferable, they can be traded to market participants with available
capital; this is not the case with open offers.
entirely consistent with our explanation. Our results suggest that, when a firm is making a large
issuance (in absolute terms), the capacity of the market (i.e. what issues have happened prior) is
important in determining the reaction to the issuance.
Thirdly, contrary to the conventional view that the book-to-market ratio exerts a positive
influence on announcement returns (consistent with an overvaluation and market timing story), we
find a negative relationship during the crisis period. Our finding is consistent with the view that
B/M also proxies for a distressed firm effect which may have dominated the conventional ‘market
timing’ effect during the GFC.
Fourthly, when credit markets dried up during the GFC, as indicated by tightening LIBOROIS spreads, companies resorted to more equity issuances. And, in 2009, a year of high equity
issuances, we found that the announcement returns were actually strongly positive for many firms.
We attributed the latter to the climate of low expectations in 2009, where the market was expressing
relief that an equity issue may potentially save a firm from insolvency. Thus, for some firms, an
equity issuance may have been seen as a positive signal, given the expectations already impounded
into the market price. The fact that an equity issuance could, in some circumstances, be perceived as
a positive signal is interesting, given that conventional information asymmetry arguments typically
treat equity issues as a negative signal.
Overall, our paper documents fresh and surprising results about equity capital raising during
the GFC, and also offers insights for corporate finance that are of interest beyond the current crisis.
We find that, with equity issuances and announcement effects, (i) capital market constraints can
play an important role, (ii) existing market expectations matter a lot in determining if signalling will
be effective; and (iii) quality signalling and firm information asymmetry effects may not be the
most important determinants of announcement returns, at least in some states of the world.
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Appendix 1. Variable Definitions.
This table describes the explanatory variables used in this study and how we construct them. All market data and
accounting data in this section come from Datastream and Worldscope. The name in brackets refers to the
shorthand label used in our regression analysis.
Issue Characteristics
Issue Discount
Percentage difference between issue price of new shares (offer price) and the closing
(DISC)
share price on the trading day prior to announcement of the equity issuance, calculated as
(Share Price - Offer Price) / (Share Price) x 100. If an offer has two components in which
the offer prices differ, the weighted average offer price is used to calculate the discount.
Underwritten
Indicator variable equal to one if the offer was underwritten.
(UNDERWRIT)
Use of proceeds for Indicator variable equal to one if offer proceeds were for acquisition purposes. (Use of
M&A (M&A Flag) Proceeds field in Thomson ONE Banker contains the term "acquisition")
Scaled Offer
Total offer proceeds for an equity issuance, divided by the firm’s market capitalization on
Proceeds (OP/MV) the day prior to announcement.
Cumulative
We estimate normal returns with a market model, using [-260,-11] as the estimation
Abnormal Returns
window. Because there are a number of small firms in our sample which may be subject
(CAR)
to infrequent trading, we use Dimson (1979) betas with n=2 (two leads/lags of market
returns). Our standard event window is [-1,1]. If there are fewer than 40 trading days of
data before the announcement date, then we set CAR for that transaction to missing.
Firm Characteristics
Firm Size
Natural logarithm of the firm’s market capitalization on the day prior to announcement of
(LOGMV)
the equity issuance.
Financial
Indicator variable equal to one if a firm's one-digit SIC code is 6.
Debt-to-Equity
A measure of firm leverage, calculated as total debt divided by market value of equity.
(DxE)
Total debt is taken at the most recent annual balance date before the announcement date.
Market value of equity is taken on the day prior to the announcement date.
Book-to-Market
The book value of equity on the most recent annual balance date before the
announcement date, divided by market value of equity taken on the day prior to the
announcement date.
Negative EBIT
Profitability indicator variable equal to one if a firm's EBIT (net income for financial
firms) is negative in the most recent financial year before the announcement date. As our
sample contains both financial and non-financial firms, we do not use return on assets to
control for profitability due to industry differences. An indicator variable is a
parsimonious solution to this problem.
Prior Return
Market-adjusted stock return over the trading month prior to the announcement date [-25,
-5].
Bid-Ask Spread
The average of the bid and ask prices, scaled by the mid-price, over the 40 trading days
prior to the announcement date.
Idiosyncratic
The standard deviation of the residuals from a market model regression over an
Volatility
estimation window of [-260, -11].
Others
VIX
The level of the CBOE Market Volatility Index on the day prior to the announcement
date. This is a measure of general uncertainty about future asset values, which should be
an important determinant of the market’s reaction to an equity issuance, insofar as this
reaction is driven by information asymmetries between the firm and the market.
LIBOR-OIS spread The difference between the pounds sterling three-month LIBOR rate and OIS rate on the
day prior to announcement. We use this LIBOR-OIS spread as a proxy for the state of the
credit markets, and thus as a measure of the difficulty firms face in obtaining or
refinancing corporate credit.
Industry Issuance
The total offer proceeds (in pounds sterling) issued by firms in a particular industry (same
Ratio (IIR)
1-digit SIC code) over the prior three months, divided by total offer proceeds across
industries over the same time period. We use this variable interacted with transactionlevel Offer Proceeds (IIRxOP) as a measure of a firm’s issuance relative to its peers. If a
firm makes a large issuance, and its peers have already made substantial issuances over
the prior months, then IIRxOP will be high.
Figure 1.
This figure shows the monthly average of the three-month LIBOR-OIS spread for pounds sterling, from the
beginning of 2003 to the end of 2012.
LIBOR-OIS spread (basis points)
250
200
150
100
50
0
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Table 1. Sample Construction.
This table outlines the construction of our sample of UK secondary equity issuances. Our primary data source is
Thomson ONE Banker (similar to SDC Platinum). All exclusions are detailed below.
Initial Thomson ONE Banker sample
- Follow-on equity offerings for UK public companies from 2003-2012
6097
Exclude any issues with no new shares issued (i.e. secondary sale)
(603)
Exclude issues not on London Main Market
("Primary Exchange Where Issuer's Stock Trades = London")
Exclude issues where security type is anything other than Ordinary or
Common Shares
(3556)
(39)
Exclude VCTs and investment trusts
(853)
Manually aggregate individual components into transactions
(e.g. Thomson ONE Banker often reports an Open Offer and Placing as
two separate transactions)
(331)
715
Miscellaneous exclusions
(15)
Final sample, consisting of:
Rights issues
Open offers
Rights issues and placings
Open offers and placings
Placings
TOTAL
91
10
17
141
441
700
Table 2. Summary Statistics.
This table presents basis summary statistics for our sample of UK secondary equity issuances from 2003-2012. The Offer Proceeds variable is the total amount of capital
raised in the offering, in pounds sterling (millions). The Offer Proceeds / Market Capitalisation variable is the total offer proceeds for an issue as a percentage of market
capitalisation on the day prior to the issuance announcement. The Firm Market Capitalisation variable is the firm's market capitalisation on the day prior to the issuance
announcement. The Discount variable is calculated as (Share Price on day before announcement - Issue Price) / (Share Price on day before announcement) x 100. In the event
that the offer has multiple components (e.g. open offer and placing) and each component has a different issue price, we calculate a weighted average based on Offer Proceeds
for each component. The RI&RIP subsample comprises Rights Issues, and Rights Issues with Placings. The OO&OOP subsample comprises Open Offers, and Open Offers
with Placings. The Placings subsample contains issues that were comprised of placings only. We also present Rights Issues with Placings (RIP) and Open Offers only (OO)
separately, as these are relatively uncommon combinations.
RI & RIP
Variable
Offer Proceeds (GBPm)
Offer Proceeds / Market Capitalisation (%)
Firm Market Capitalisation (GBPm)
Discount / (Premium) (%)
Sample Size
Annual distribution:
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
RIP only
OO & OOP
OO only
Placings
Full Sample
Mean
Median
Mean
Median
Mean
Median
Mean
Median
Mean
Median
Mean
Median
776.4
46.5
2,976.0
42.5
140.0
31.7
365.9
46.1
972.8
64.8
1,775.0
38.0
94.1
46.7
103.7
47.6
333.3
116.2
669.3
10.2
27.3
45.8
60.6
9.1
1,367.0
211.0
2,082.0
7.2
6.5
74.9
8.6
8.5
58.3
16.4
1,061.0
6.2
6.7
8.8
68.8
4.3
228.4
42.4
1,274.0
13.4
17.1
13.9
95.6
7.0
108
15%
17
2%
151
22%
10
1%
441
63%
700
9
12
10
9
5
11
39
5
4
4
13%
14%
17%
21%
8%
18%
27%
9%
6%
7%
1
1
2
0
1
2
8
1
1
0
1%
1%
3%
0%
2%
3%
6%
2%
1%
0%
27
24
14
6
10
12
35
8
10
5
39%
29%
24%
14%
15%
20%
24%
14%
15%
9%
2
1
1
0
1
2
1
0
0
2
3%
1%
2%
0%
2%
3%
1%
0%
0%
4%
33
47
34
27
51
38
70
43
53
45
48%
57%
59%
64%
77%
62%
49%
77%
79%
83%
69
83
58
42
66
61
144
56
67
54
Table 3. Univariate Analysis.
This table shows various announcement cumulative abnormal returns for different types of equity issuances.
Abnormal returns are calculated using the market model with Dimson betas (2 lead/lags) from -260 to -20.
Cumulative abnormal return (CAR) is calculated from days [-3,3] relative to the announcement date. The
RI&RIP subsample comprises Rights Issues, and Rights Issues with Placings. The OO&OOP subsample
comprises Open Offers, and Open Offers with Placings. The Placings subsample contains issues that were
comprised of placings only. LIBOR-OIS spread is calculated using the three month pounds sterling LIBOR and
OIS rates. T-statistics are calculated using White standard errors.
Sample size
Panel A: Full sample
RI & RIP
OO & OOP
Placings
All issuances
Panel B: Pre & Post Crisis
RI & RIP
2003-2007
2008-2012
OO & OOP
2003-2007
2008-2012
Placings
2003-2007
2008-2012
All issuances
2003-2007
2008-2012
Panel C: LIBOS-OIS levels
RI & RIP
< 50 bps
≥ 50 bps
OO & OOP
< 50 bps
≥ 50 bps
Placings
< 50 bps
≥ 50 bps
All issuances
< 50 bps
≥ 50 bps
Freq. CAR(-3,3) t-statistic
Proportion of
negative returns
Discount
108
151
441
700
15%
22%
63%
-6.64%
-2.32%
1.41%
-0.63%
-2.96
-1.07
2.02
-0.87
0.602
0.470
0.501
0.510
40.0%
13.8%
7.1%
13.6%
45
63
14%
16%
-1.17%
-10.46%
-0.55
-3.05
0.545
0.635
29.9%
47.0%
81
70
25%
18%
1.69%
-6.89%
1.10
-1.64
0.415
0.543
8.8%
19.6%
192
249
60%
65%
2.56%
0.53%
3.14
0.51
0.438
0.550
5.4%
8.4%
1.81%
-2.64%
2.60
-2.21
0.447
0.563
9.7%
16.9%
318
382
65
42
13%
22%
-2.60%
-12.89%
-1.42
-2.66
0.600
0.595
34.8%
48.0%
113
39
22%
21%
0.70%
-10.90%
0.41
-1.69
0.442
0.564
11.7%
19.8%
332
109
65%
57%
1.19%
2.08%
1.59
1.26
0.479
0.569
6.8%
8.0%
0.59%
-3.90%
0.90
-1.95
0.486
0.574
11.5%
19.3%
510
190
Table 4. OLS Regression of Announcement Abnormal Returns - Rights Issues & Open Offers
This table shows the results from OLS regressions of cumulative abnormal returns (CARs) on the listed
explanatory variables. T-statistics are in brackets, and are calculated using White standard errors. Variables are
defined in Appendix 1.
RI, RIP, OO & OOP (COMB.)
Intercept
DISC
UNDERWRIT
OP/MV
LOGMV
M&A Flag
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
-1.67
-2.47
3.44
-1.37
-5.32
-6.11
-2.32
-1.06
-6.77
(-0.32)
(-0.48)
(0.56)
(-0.24)
(-0.77)
(-1.07)
(-0.41)
(-0.12)
(-0.83)
-0.18
-0.19
-0.20
-0.20
-0.20
-0.19
-0.21
-0.25
-0.25
(-2.96)
(-3.11)
(-3.24)
(-3.26)
(-3.10)
(-3.16)
(-3.31)
(-4.02)
(-3.94)
13.29
13.06
12.32
13.18
13.27
12.09
13.08
12.84
13.38
(4.00)
(3.97)
(3.80)
(3.77)
(3.55)
(3.53)
(3.90)
(3.44)
(3.48)
-1.76
-1.12
0.25
2.72
-3.29
0.06
-2.97
0.51
-0.46
(-0.47)
(-0.30)
(0.07)
(0.62)
(-0.83)
(0.02)
(-0.81)
(0.11)
(-0.10)
-0.77
-0.41
-0.09
0.08
-0.63
0.41
-0.75
0.64
0.42
(-0.89)
(-0.51)
(-0.11)
(0.08)
(-0.67)
(0.42)
(-0.86)
(0.61)
(0.40)
5.83
5.84
6.08
3.17
6.68
5.38
5.86
3.79
3.49
(2.62)
(2.62)
(2.78)
(1.29)
(2.79)
(2.35)
(2.61)
(1.56)
(1.41)
LIBOR-OIS
-0.05
-0.05
(-1.31)
(-1.28)
VIX
-0.36
-0.36
(-1.94)
(-2.22)
Debt-to-Equity
FINANCIAL x D-E
FINANCIAL
Book-to-Market
Negative EBIT
Neg. EBIT x FINANCIAL
0.58
0.53
0.66
(0.45)
(0.39)
(0.50)
-2.37
-2.24
-2.41
(-1.60)
(-1.43)
(-1.55)
-1.15
-1.80
-1.56
(-0.29)
(-0.41)
(-0.36)
-3.76
-3.35
-3.66
(-1.97)
(-1.79)
(-1.95)
-3.83
-8.32
-8.36
(-1.38)
(-2.71)
(-2.69)
7.08
9.37
9.75
(1.27)
(1.80)
(1.86)
Bid-Ask Spread
Idio. Vol.
-11.17
-0.34
-5.41
(-0.36)
(-0.01)
(-0.14)
1.26
1.41
1.52
(1.70)
(1.65)
(1.77)
1.86
4.17
4.26
(0.37)
(0.74)
(0.74)
-0.04
0.00
0.00
(-1.85)
(0.09)
(-0.16)
Industry Issuance Ratio
IIR x Offer Proceeds
Prior Return
Prior Return < 0
Prior Ret. x (Prior Ret < 0)
0.07
0.30
0.26
(0.42)
(1.68)
(1.40)
-1.25
-0.14
-0.54
(-0.44)
(-0.05)
(-0.19)
-0.68
-0.98
-0.90
(-2.36)
(-3.19)
(-2.86)
Year-fixed effects
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Adj. R2
0.12
0.12
0.14
0.15
0.12
0.13
0.14
0.20
0.18
n
257
257
257
249
253
257
257
248
248
TABLE 5: OLS Regressions of Announcement Abnormal Returns - Rights Issues
This table shows the results from OLS regressions of cumulative abnormal returns (CARs) on the listed
explanatory variables. T-statistics are in brackets, and are calculated using White standard errors. Variables are
defined in Appendix 1.
RI & RIP
Intercept
DISC
UNDERWRIT
OP/MV
LOGMV
M&A Flag
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
-10.59
-10.13
-12.21
-7.64
-18.78
-13.96
-11.93
-17.13
-17.92
(-0.79)
(-0.75)
(-0.84)
(-0.50)
(-1.39)
(-1.03)
(-1.07)
(-1.05)
(-1.11)
-0.15
-0.14
-0.15
-0.19
-0.22
-0.13
-0.18
-0.28
-0.28
(-1.34)
(-1.29)
(-1.35)
(-1.71)
(-2.04)
(-1.21)
(-1.49)
(-2.23)
(-2.21)
13.03
12.84
13.38
12.39
3.28
11.35
13.96
-1.02
-0.79
(1.10)
(1.06)
(1.11)
(1.00)
(0.49)
(0.97)
(1.68)
(-0.16)
(-0.12)
-7.04
-7.20
-7.46
2.25
-10.57
-6.21
-8.08
-1.07
-1.50
(-1.08)
(-1.11)
(-1.13)
(0.27)
(-1.71)
(-0.94)
(-1.37)
(-0.14)
(-0.20)
0.84
0.73
0.74
1.59
1.82
1.55
0.90
3.01
2.91
(0.80)
(0.71)
(0.72)
(1.34)
(1.49)
(1.36)
(0.89)
(2.04)
(1.97)
5.38
5.21
5.07
1.14
7.86
4.63
4.33
2.05
1.74
(1.48)
(1.46)
(1.41)
(0.29)
(2.21)
(1.23)
(1.22)
(0.59)
(0.50)
LIBOR-OIS
0.02
0.00
(0.48)
(0.09)
VIX
0.09
-0.07
(0.40)
(-0.38)
Debt-to-Equity
FINANCIAL x D-E
FINANCIAL
Book-to-Market
Negative EBIT
Neg. EBIT x FINANCIAL
-0.56
-1.22
-1.08
(-0.25)
(-0.62)
(-0.56)
-1.05
-0.43
-0.49
(-0.51)
(-0.24)
(-0.28)
-5.37
-13.33
-12.85
(-0.86)
(-1.99)
(-1.90)
-4.35
-3.24
-3.51
(-1.36)
(-1.18)
(-1.30)
-4.22
-11.25
-11.26
(-0.83)
(-2.29)
(-2.29)
13.01
18.43
18.82
(1.53)
(2.71)
(2.76)
Bid-Ask Spread
Idio. Vol.
-36.22
-17.09
-16.87
(-0.49)
(-0.18)
(-0.17)
3.93
4.42
4.47
(3.66)
(4.48)
(4.31)
5.72
19.95
19.06
(0.54)
(1.74)
(1.67)
-0.03
-0.01
-0.01
(-0.93)
(-0.46)
(-0.49)
Industry Issuance Ratio
IIR x Offer Proceeds
Prior Return
Prior Return < 0
Prior Ret. x (Prior Ret < 0)
0.00
0.31
0.27
(0.01)
(0.97)
(0.86)
-6.94
-4.23
-4.20
(-1.52)
(-1.02)
(-1.01)
-1.27
-1.43
-1.33
(-2.82)
(-2.99)
(-2.83)
Year-fixed effects
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Adj. R2
0.06
0.05
0.05
0.06
0.13
0.05
0.14
0.21
0.21
n
107
107
107
105
107
107
107
105
105
Table 6: OLS Regression of Announcement Abnormal Returns - Open Offers
This table shows the results from OLS regressions of cumulative abnormal returns (CARs) on the listed
explanatory variables. T-statistics are in brackets, and are calculated using White standard errors. Variables are
defined in Appendix 1.
OO & OOP
Intercept
DISC
UNDERWRIT
OP/MV
LOGMV
M&A Flag
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
4.59
2.02
12.46
3.06
11.31
-4.88
3.71
16.43
5.07
(0.66)
(0.30)
(1.90)
(0.39)
(1.33)
(-0.63)
(0.52)
(1.43)
(0.45)
-0.18
-0.19
-0.21
-0.20
-0.23
-0.17
-0.21
-0.29
-0.26
(-1.67)
(-1.78)
(-2.08)
(-1.73)
(-1.98)
(-1.60)
(-1.73)
(-2.29)
(-2.08)
15.16
14.44
13.15
15.29
13.85
13.06
14.89
13.61
14.20
(4.18)
(4.07)
(3.77)
(3.86)
(3.71)
(3.40)
(4.04)
(3.57)
(3.58)
-1.41
0.46
2.91
0.95
-1.48
2.43
-2.42
1.62
0.49
(-0.32)
(0.11)
(0.67)
(0.18)
(-0.32)
(0.53)
(-0.55)
(0.29)
(0.09)
-2.75
-1.73
-0.99
-1.89
-3.95
-0.28
-2.79
-1.78
-1.98
(-2.21)
(-1.50)
(-0.88)
(-1.22)
(-2.77)
(-0.18)
(-2.25)
(-0.97)
(-1.06)
5.21
4.63
4.38
4.60
5.39
5.80
5.18
3.02
3.94
(1.90)
(1.73)
(1.75)
(1.52)
(1.79)
(2.17)
(1.86)
(1.01)
(1.28)
LIBOR-OIS
-0.11
-0.09
(-2.22)
(-1.64)
VIX
-0.68
-0.65
(-4.06)
(-3.29)
Debt-to-Equity
FINANCIAL x D-E
FINANCIAL
Book-to-Market
Negative EBIT
Neg. EBIT x FINANCIAL
0.97
1.30
1.33
(0.64)
(0.85)
(0.89)
-2.13
0.06
0.08
(-1.07)
(0.03)
(0.04)
-0.01
1.65
0.99
(-0.00)
(0.40)
(0.22)
-2.53
-2.58
-3.02
(-1.03)
(-1.13)
(-1.28)
-3.01
-5.42
-5.41
(-0.90)
(-1.46)
(-1.45)
2.19
0.66
1.49
(0.31)
(0.12)
(0.26)
Bid-Ask Spread
Idio. Vol.
-59.73
-35.08
-47.08
(-1.72)
(-0.82)
(-1.07)
0.96
0.55
0.83
(1.00)
(0.48)
(0.72)
0.70
1.79
2.85
(0.13)
(0.27)
(0.40)
-0.07
-0.03
-0.05
(-2.17)
(-0.87)
(-1.59)
Industry Issuance Ratio
IIR x Offer Proceeds
Prior Return
Prior Return < 0
Prior Ret. x (Prior Ret < 0)
0.12
0.23
0.19
(0.68)
(1.17)
(0.93)
1.82
2.71
1.88
(0.56)
(0.75)
(0.51)
-0.37
-0.55
-0.47
(-1.13)
(-1.44)
(-1.20)
Year-fixed effects
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Adj. R2
0.16
0.19
0.23
0.15
0.17
0.18
0.15
0.21
0.17
n
150
150
150
144
146
150
150
143
143
Table 7: OLS Regressions of Announcement Abnormal Returns - Placings
This table shows the results from OLS regressions of cumulative abnormal returns (CARs) on the listed
explanatory variables. T-statistics are in brackets, and are calculated using White standard errors. Variables are
defined in Appendix 1.
Placings
Intercept
DISC
UNDERWRIT
OP/MV
LOGMV
M&A Flag
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
3.04
3.02
2.99
5.51
-2.22
2.67
0.15
-0.96
-1.55
(0.92)
(0.91)
(0.81)
(1.51)
(-0.63)
(0.80)
(0.04)
(-0.24)
(-0.39)
-0.24
-0.24
-0.24
-0.23
-0.26
-0.25
-0.25
-0.27
-0.27
(-3.50)
(-3.47)
(-3.50)
(-3.35)
(-3.76)
(-3.56)
(-3.54)
(-3.86)
(-3.82)
3.20
3.00
3.20
3.12
3.15
3.28
2.99
2.98
2.87
(1.14)
(1.06)
(1.14)
(1.12)
(1.15)
(1.17)
(1.07)
(1.12)
(1.07)
4.92
4.91
4.90
6.09
6.10
5.10
5.65
8.06
8.09
(1.34)
(1.34)
(1.32)
(1.61)
(1.69)
(1.39)
(1.53)
(2.18)
(2.20)
-0.61
-0.61
-0.61
-0.78
0.00
-0.49
-0.43
-0.06
-0.08
(-2.19)
(-2.19)
(-2.18)
(-2.38)
(0.00)
(-1.67)
(-1.47)
(-0.15)
(-0.20)
-0.56
-0.45
-0.55
-1.11
-0.21
-0.53
-0.06
-0.49
-0.38
(-0.45)
(-0.37)
(-0.45)
(-0.91)
(-0.17)
(-0.43)
(-0.05)
(-0.40)
(-0.32)
LIBOR-OIS
0.01
0.01
(0.68)
(0.45)
VIX
0.00
-0.04
(0.03)
(-0.40)
Debt-to-Equity
FINANCIAL x D-E
FINANCIAL
Book-to-Market
Negative EBIT
Neg. EBIT x FINANCIAL
-0.50
-0.72
-0.73
(-0.60)
(-0.88)
(-0.88)
0.15
0.86
0.85
(0.16)
(0.95)
(0.93)
-1.70
-0.18
-0.12
(-1.02)
(-0.10)
(-0.07)
-0.79
-1.09
-1.19
(-0.57)
(-0.80)
(-0.87)
-3.04
-4.46
-4.43
(-2.03)
(-2.92)
(-2.89)
4.21
3.99
3.85
(1.20)
(1.19)
(1.15)
Bid-Ask Spread
Idio. Vol.
14.71
14.99
14.81
(1.17)
(1.17)
(1.14)
0.64
0.77
0.75
(1.99)
(2.14)
(2.12)
-2.62
-4.32
-4.17
(-0.83)
(-1.35)
(-1.30)
-0.01
-0.01
-0.01
(-1.42)
(-1.40)
(-1.39)
Industry Issuance Ratio
IIR x Offer Proceeds
Prior Return
Prior Return < 0
Prior Ret. x (Prior Ret < 0)
0.24
0.28
0.27
(1.95)
(2.19)
(2.13)
0.88
0.71
0.71
(0.55)
(0.43)
(0.43)
-0.35
-0.38
-0.37
(-1.95)
(-2.10)
(-2.06)
Year-fixed effects
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Adj. R2
0.06
0.06
0.06
0.06
0.07
0.06
0.07
0.09
0.09
n
437
437
437
431
436
437
437
430
430
Table 8: OLS Regressions of Announcement Abnormal Returns - Rights Issues & Open Offers (20032007)
This table shows the results from OLS regressions of cumulative abnormal returns (CARs) on the listed
explanatory variables. T-statistics are in brackets, and are calculated using White standard errors. Variables are
defined in Appendix 1.
RI, RIP, OO & OOP (COMB.)
Intercept
DISC
UNDERWRIT
OP/MV
LOGMV
M&A Flag
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
-3.45
-2.71
12.79
-0.99
-17.13
-4.40
-6.71
-1.12
-10.68
(-0.60)
(-0.47)
(1.50)
(-0.14)
(-2.61)
(-0.61)
(-1.08)
(-0.13)
(-1.43)
-0.29
-0.29
-0.25
-0.27
-0.38
-0.29
-0.34
-0.31
-0.35
(-3.17)
(-3.14)
(-2.86)
(-2.79)
(-4.44)
(-3.16)
(-3.96)
(-4.17)
(-4.68)
10.60
10.92
10.53
11.45
8.14
10.71
9.29
9.39
9.80
(3.06)
(3.13)
(3.18)
(3.32)
(2.33)
(3.07)
(2.88)
(2.79)
(2.79)
-2.10
-1.80
0.03
-5.84
-1.33
-1.91
-3.19
-3.16
-4.75
(-0.45)
(-0.38)
(0.01)
(-1.26)
(-0.32)
(-0.39)
(-0.69)
(-0.60)
(-0.98)
0.69
0.60
0.50
0.78
1.74
0.80
1.16
1.35
1.12
(0.55)
(0.48)
(0.40)
(0.58)
(1.65)
(0.53)
(1.03)
(1.08)
(0.87)
5.84
5.79
5.96
2.91
9.48
6.03
7.23
5.73
5.76
(2.77)
(2.76)
(3.01)
(1.25)
(4.41)
(2.72)
(3.27)
(2.63)
(2.54)
LIBOR-OIS
-0.07
-0.06
(-1.56)
(-1.47)
VIX
-0.79
-0.60
(-2.27)
Debt-to-Equity
FINANCIAL x D-E
FINANCIAL
Book-to-Market
Negative EBIT
Neg. EBIT x FINANCIAL
(-2.50)
1.74
1.72
1.69
(1.14)
(0.99)
(0.98)
2.33
0.71
0.95
(1.24)
(0.40)
(0.53)
-7.07
-3.59
-4.34
(-2.07)
(-0.83)
(-1.03)
0.37
-0.38
-0.17
(0.15)
(-0.21)
(-0.10)
-5.35
-10.83
-10.76
(-1.85)
(-3.53)
(-3.42)
15.78
9.59
11.31
(2.21)
(1.47)
(1.75)
Bid-Ask Spread
Idio. Vol.
-17.76
-8.65
-19.73
(-0.70)
(-0.30)
(-0.64)
3.42
3.81
3.80
(5.62)
(4.94)
(4.87)
Industry Issuance Ratio
IIR x Offer Proceeds
2.62
3.13
3.18
(0.52)
(0.60)
(0.60)
-0.01
-0.01
0.00
(-0.16)
(-0.20)
(0.05)
Prior Return
Prior Return < 0
Prior Ret. x (Prior Ret < 0)
0.34
0.14
0.12
(1.92)
(0.93)
(0.75)
-1.64
-1.58
-2.74
(-0.55)
(-0.59)
(-1.01)
-0.99
-0.42
-0.50
(-2.59)
(-1.13)
(-1.33)
Year-fixed effects
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Adj. R2
0.17
0.17
0.21
0.22
0.31
0.16
0.21
0.41
0.39
n
124
124
124
121
123
124
124
120
120
Table 9: OLS Regressions of Announcement Abnormal Returns - Rights Issues & Open Offers (20082012)
This table shows the results from OLS regressions of cumulative abnormal returns (CARs) on the listed
explanatory variables. T-statistics are in brackets, and are calculated using White standard errors. Variables are
defined in Appendix 1.
RI, RIP, OO & OOP (COMB.)
Intercept
DISC
UNDERWRIT
OP/MV
LOGMV
M&A Flag
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
-13.48
-11.79
-9.33
-15.64
-14.65
-17.64
-13.59
-6.16
-8.73
(-1.21)
(-1.04)
(-0.80)
(-1.33)
(-1.12)
(-1.48)
(-1.16)
(-0.37)
(-0.52)
-0.15
-0.16
-0.16
-0.15
-0.16
-0.16
-0.17
-0.18
-0.18
(-1.89)
(-1.97)
(-2.08)
(-1.91)
(-1.88)
(-1.97)
(-2.10)
(-2.32)
(-2.24)
15.27
14.95
14.14
12.07
16.71
13.35
13.83
10.00
10.51
(2.59)
(2.56)
(2.42)
(1.87)
(2.31)
(2.19)
(2.33)
(1.41)
(1.44)
-0.76
-0.09
1.16
9.53
-0.75
1.23
-1.27
8.67
7.73
(-0.14)
(-0.02)
(0.22)
(1.46)
(-0.12)
(0.22)
(-0.24)
(1.36)
(1.19)
-1.19
-0.78
-0.44
1.08
-1.09
0.21
-1.09
1.16
1.04
(-1.11)
(-0.76)
(-0.43)
(0.95)
(-0.89)
(0.17)
(-1.02)
(0.81)
(0.71)
5.57
5.74
6.16
0.66
4.78
5.14
4.20
-1.91
-2.54
(1.25)
(1.30)
(1.41)
(0.15)
(1.02)
(1.16)
(0.94)
(-0.43)
(-0.56)
LIBOR-OIS
-0.04
-0.07
(-0.96)
(-1.56)
VIX
-0.28
-0.38
(-1.40)
Debt-to-Equity
FINANCIAL x D-E
FINANCIAL
Book-to-Market
Negative EBIT
Neg. EBIT x FINANCIAL
(-2.07)
-0.10
0.38
0.54
(-0.07)
(0.27)
(0.38)
-3.36
-3.46
-3.70
(-2.03)
(-2.02)
(-2.21)
5.77
6.40
5.89
(0.79)
(0.78)
(0.72)
-5.58
-5.95
-6.09
(-2.21)
(-2.17)
(-2.20)
0.41
-1.25
-1.41
(0.08)
(-0.22)
(-0.24)
-1.66
-4.69
-4.29
(-0.22)
(-0.55)
(-0.51)
Bid-Ask Spread
Idio. Vol.
13.70
-18.01
-20.55
(0.23)
(-0.25)
(-0.29)
-0.15
-1.10
-1.07
(-0.13)
(-0.86)
(-0.84)
Industry Issuance Ratio
IIR x Offer Proceeds
0.54
8.70
10.69
(0.05)
(0.79)
(0.94)
-0.03
-0.01
-0.01
(-1.14)
(-0.20)
(-0.37)
Prior Return
Prior Return < 0
Prior Ret. x (Prior Ret < 0)
-0.04
0.44
0.39
(-0.16)
(1.58)
(1.40)
0.30
1.01
0.62
(0.06)
(0.20)
(0.12)
-0.48
-1.35
-1.28
(-1.19)
(-3.09)
(-2.84)
Year-fixed effects
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Adj. R2
0.05
0.05
0.06
0.11
0.04
0.06
0.07
0.12
0.11
n
133
133
133
128
130
133
133
128
128
Table 10: OLS Regressions of Announcement Abnormal Returns - Rights Issues (2003-2007)
This table shows the results from OLS regressions of cumulative abnormal returns (CARs) on the listed
explanatory variables. T-statistics are in brackets, and are calculated using White standard errors. Variables are
defined in Appendix 1.
RI & RIP
Intercept
DISC
UNDERWRIT
OP/MV
LOGMV
M&A Flag
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
-1.83
-5.57
8.15
6.97
-31.27
-8.35
4.26
-50.52
-48.13
(-0.16)
(-0.51)
(0.52)
(0.50)
(-2.13)
(-0.76)
(0.30)
(-2.03)
(-1.87)
-0.19
-0.16
-0.15
-0.15
-0.46
-0.08
-0.25
-0.40
-0.43
(-0.87)
(-0.70)
(-0.70)
(-0.63)
(-2.56)
(-0.37)
(-1.18)
(-2.67)
(-2.78)
9.93
14.74
10.24
5.90
-0.99
2.89
10.46
-3.94
1.58
(0.17)
(1.03)
(1.60)
(1.13)
(0.74)
(-0.16)
(0.31)
(1.26)
(-0.40)
-18.58
-15.42
-14.70
-16.00
-7.19
-20.19
-16.98
11.89
9.03
(-1.98)
(-1.66)
(-1.36)
(-1.06)
(-0.87)
(-2.08)
(-1.75)
(0.99)
(0.79)
0.85
0.75
0.63
0.78
4.46
2.17
0.85
10.10
8.05
(0.41)
(0.36)
(0.31)
(0.35)
(1.98)
(0.99)
(0.47)
(3.63)
(2.81)
1.75
0.55
2.27
-3.25
6.23
1.36
1.00
0.74
-1.55
(0.40)
(0.12)
(0.54)
(-0.75)
(1.56)
(0.29)
(0.22)
(0.20)
(-0.38)
LIBOR-OIS
-0.19
-0.16
(-2.71)
(-1.83)
VIX
-0.53
-0.76
(-0.85)
(-2.39)
Debt-to-Equity
FINANCIAL x D-E
FINANCIAL
Book-to-Market
Negative EBIT
Neg. EBIT x FINANCIAL
-1.50
-0.95
-2.99
(-0.27)
(-0.25)
(-0.78)
-23.35
-16.27
-11.78
(-2.24)
(-1.57)
(-1.13)
-1.24
-14.01
-15.21
(-0.12)
(-1.30)
(-1.44)
-2.23
-3.07
-3.63
(-0.39)
(-0.98)
(-1.22)
-7.86
-10.10
-10.05
(-1.06)
(-1.77)
(-1.69)
28.61
16.69
19.40
(3.00)
(2.04)
(2.32)
Bid-Ask Spread
Idio. Vol.
-41.34
129.08
85.42
(-0.61)
(1.07)
(0.65)
6.47
7.15
6.37
(5.78)
(7.01)
(6.28)
25.74
23.38
18.80
(2.27)
(1.84)
(1.54)
-0.10
-0.06
-0.03
(-1.55)
(-1.28)
(-0.68)
Industry Issuance Ratio
IIR x Offer Proceeds
Prior Return
Prior Return < 0
Prior Ret. x (Prior Ret < 0)
Year-fixed effects
Adj. R2
n
-0.35
0.33
0.05
(-0.59)
(1.12)
(0.14)
-12.74
-3.65
-8.23
(-2.00)
(-0.88)
(-1.53)
-0.64
-0.85
-0.84
(-0.76)
(-1.85)
(-1.94)
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
-0.01
-0.01
-0.02
0.04
0.27
0.05
0.03
0.39
0.38
44
44
44
43
44
44
44
43
43
Table 11: OLS Regressions of Announcement Abnormal Returns - Rights Issues (2008-2012)
This table shows the results from OLS regressions of cumulative abnormal returns (CARs) on the listed
explanatory variables. T-statistics are in brackets, and are calculated using White standard errors. Variables are
defined in Appendix 1.
RI & RIP
Intercept
DISC
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
-19.27
-20.17
-20.17
-20.85
-29.33
-19.25
-20.46
-11.38
-13.09
(-1.30)
(-1.30)
(-1.31)
(-1.23)
(-1.69)
(-1.30)
(-1.30)
(-0.55)
(-0.61)
-0.10
-0.10
-0.11
-0.09
-0.12
-0.11
-0.13
-0.21
-0.20
(-0.74)
(-0.68)
(-0.73)
(-0.61)
(-0.83)
(-0.83)
(-0.78)
(-1.18)
(-1.14)
UNDERWRIT
OP/MV
LOGMV
M&A Flag
-2.69
-3.25
-3.64
16.09
-7.60
-2.73
-5.12
7.73
7.09
(-0.33)
(-0.41)
(-0.45)
(1.32)
(-0.88)
(-0.35)
(-0.66)
(0.61)
(0.56)
1.28
1.02
1.01
2.83
1.98
1.56
1.15
1.44
1.30
(0.99)
(0.83)
(0.84)
(1.84)
(1.19)
(1.16)
(0.93)
(0.82)
(0.72)
8.63
7.86
7.69
2.70
9.82
9.08
6.12
0.70
0.03
(1.44)
(1.33)
(1.29)
(0.43)
(1.66)
(1.45)
(1.09)
(0.11)
(0.01)
LIBOR-OIS
0.03
-0.01
(0.61)
(-0.12)
VIX
0.13
-0.16
(0.58)
(-0.64)
Debt-to-Equity
FINANCIAL x D-E
FINANCIAL
Book-to-Market
Negative EBIT
Neg. EBIT x FINANCIAL
-1.86
-1.03
-0.81
(-0.80)
(-0.44)
(-0.35)
-1.27
-1.32
-1.48
(-0.54)
(-0.53)
(-0.61)
0.44
-5.95
-5.09
(0.04)
(-0.52)
(-0.41)
-4.46
-6.04
-6.39
(-1.21)
(-1.51)
(-1.59)
-5.38
-12.49
-12.38
(-0.67)
(-1.69)
(-1.68)
7.58
10.66
11.39
(0.64)
(1.03)
(1.09)
105.73
-200.57
-197.59
(0.45)
(-0.83)
(-0.80)
2.51
2.52
2.62
(1.34)
(1.36)
(1.36)
-11.36
15.93
14.31
(-0.65)
(0.76)
(0.64)
0.01
0.01
0.01
(0.23)
(0.16)
(0.14)
Bid-Ask Spread
Idio. Vol.
Industry Issuance Ratio
IIR x Offer Proceeds
Prior Return
Prior Return < 0
Prior Ret. x (Prior Ret < 0)
0.10
0.48
0.40
(0.26)
(1.24)
(1.03)
-1.73
0.11
0.19
(-0.25)
(0.02)
(0.03)
-1.31
-1.86
-1.65
(-2.15)
(-2.51)
(-2.29)
Year-fixed effects
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Adj. R2
0.03
0.02
0.02
-0.01
0.03
0.02
0.11
-0.01
-0.02
63
63
63
62
63
63
63
62
62
n
Table 12: OLS Regressions of Announcement Abnormal Returns - Open Offers (2003-2007)
This table shows the results from OLS regressions of cumulative abnormal returns (CARs) on the listed
explanatory variables. T-statistics are in brackets, and are calculated using White standard errors. Variables are
defined in Appendix 1.
OO & OOP
Intercept
DISC
UNDERWRIT
OP/MV
LOGMV
M&A Flag
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
-3.24
-2.66
16.12
-6.70
-5.28
4.91
-6.65
9.24
-3.87
(-0.44)
(-0.35)
(1.48)
(-0.88)
(-0.70)
(0.55)
(-0.85)
(0.82)
(-0.45)
-0.40
-0.40
-0.43
-0.29
-0.61
-0.36
-0.57
-0.53
-0.53
(-3.74)
(-3.77)
(-4.59)
(-3.37)
(-4.79)
(-3.48)
(-4.97)
(-3.39)
(-3.36)
9.62
9.74
9.44
9.85
7.66
9.09
7.57
9.13
9.28
(2.71)
(2.74)
(2.76)
(2.99)
(2.19)
(2.65)
(2.51)
(3.03)
(2.99)
1.54
1.65
3.64
-3.09
1.82
-2.44
-0.12
-3.09
-4.07
(0.30)
(0.32)
(0.67)
(-0.67)
(0.40)
(-0.45)
(-0.02)
(-0.57)
(-0.80)
0.51
0.45
0.26
1.71
-0.51
-0.96
0.83
-0.98
-0.86
(0.30)
(0.26)
(0.15)
(1.14)
(-0.33)
(-0.48)
(0.55)
(-0.56)
(-0.50)
7.37
7.44
7.14
5.13
11.46
6.79
8.98
7.51
8.05
(2.95)
(2.96)
(3.00)
(1.87)
(4.83)
(2.73)
(3.46)
(2.68)
(2.88)
LIBOR-OIS
-0.04
-0.09
(-0.83)
(-2.38)
VIX
-0.90
-0.67
(-2.53)
(-2.58)
Debt-to-Equity
FINANCIAL x D-E
FINANCIAL
Book-to-Market
Negative EBIT
Neg. EBIT x FINANCIAL
0.91
0.33
0.21
(0.55)
(0.15)
(0.09)
4.44
0.46
0.95
(2.25)
(0.20)
(0.43)
-6.86
-1.64
-3.16
(-2.12)
(-0.49)
(-0.93)
3.46
1.41
2.41
(1.38)
(0.49)
(0.86)
-2.86
-9.94
-9.72
(-0.98)
(-3.19)
(-3.04)
10.62
4.05
6.05
(1.67)
(0.65)
(0.97)
Bid-Ask Spread
Idio. Vol.
-58.15
-5.56
-16.72
(-1.80)
(-0.15)
(-0.44)
3.43
3.35
3.47
(4.57)
(3.08)
(3.16)
-7.81
-4.29
-3.42
(-1.35)
(-0.72)
(-0.58)
0.18
0.12
0.11
(1.49)
(1.15)
(1.06)
Industry Issuance Ratio
IIR x Offer Proceeds
Prior Return
Prior Return < 0
Prior Ret. x (Prior Ret < 0)
0.50
0.31
0.32
(3.28)
(2.00)
(1.79)
3.05
2.26
1.55
(1.05)
(0.78)
(0.53)
-1.12
-0.73
-0.75
(-3.12)
(-2.22)
(-2.13)
Year-fixed effects
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Adj. R2
0.22
0.21
0.27
0.29
0.40
0.23
0.30
0.49
0.46
80
80
80
78
79
80
80
77
77
n
Table 13: OLS Regressions of Announcement Abnormal Returns - Open Offers (2008-2012)
This table shows the results from OLS regressions of cumulative abnormal returns (CARs) on the listed
explanatory variables. T-statistics are in brackets, and are calculated using White standard errors. Variables are
defined in Appendix 1.
OO & OOP
Intercept
DISC
UNDERWRIT
OP/MV
LOGMV
M&A Flag
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
0.92
4.60
8.58
-8.79
10.98
-13.01
1.48
13.92
4.99
(0.06)
(0.31)
(0.56)
(-0.46)
(0.62)
(-0.77)
(0.10)
(0.51)
(0.19)
-0.14
-0.15
-0.17
-0.15
-0.14
-0.09
-0.16
-0.15
-0.10
(-1.09)
(-1.18)
(-1.32)
(-1.02)
(-0.89)
(-0.69)
(-1.11)
(-0.85)
(-0.61)
18.55
17.58
16.18
15.35
16.39
15.22
17.76
12.89
12.65
(2.83)
(2.73)
(2.54)
(1.84)
(2.22)
(2.20)
(2.70)
(1.63)
(1.54)
0.14
2.02
4.24
5.20
1.83
5.39
-0.02
9.00
9.34
(0.02)
(0.31)
(0.65)
(0.61)
(0.26)
(0.77)
(-0.00)
(0.93)
(0.93)
-3.78
-2.37
-1.61
-0.49
-4.81
-0.45
-3.75
-0.45
0.45
(-2.58)
(-1.54)
(-1.07)
(-0.15)
(-2.62)
(-0.21)
(-2.51)
(-0.11)
(0.11)
1.60
-0.46
-0.36
-1.18
0.02
4.15
0.90
-10.02
-9.70
(0.27)
(-0.08)
(-0.07)
(-0.17)
(0.00)
(0.70)
(0.15)
(-1.57)
(-1.40)
LIBOR-OIS
-0.10
-0.14
(-1.74)
(-1.78)
VIX
-0.60
-0.71
(-2.82)
(-2.62)
Debt-to-Equity
FINANCIAL x D-E
FINANCIAL
Book-to-Market
Negative EBIT
Neg. EBIT x FINANCIAL
0.44
1.05
0.99
(0.25)
(0.61)
(0.56)
-3.19
1.33
0.49
(-1.09)
(0.50)
(0.19)
5.73
8.88
7.93
(0.71)
(1.01)
(0.88)
-5.43
-5.74
-6.71
(-1.61)
(-1.78)
(-2.14)
3.21
6.17
5.95
(0.49)
(0.84)
(0.80)
-8.59
-20.56
-19.47
(-0.77)
(-1.92)
(-1.79)
Bid-Ask Spread
Idio. Vol.
-58.37
-45.17
-49.32
(-0.91)
(-0.57)
(-0.61)
-0.78
-3.32
-3.21
(-0.61)
(-2.03)
(-1.93)
11.81
3.99
7.63
(0.87)
(0.27)
(0.50)
-0.08
-0.07
-0.08
(-2.03)
(-1.62)
(-2.06)
Industry Issuance Ratio
IIR x Offer Proceeds
Prior Return
Prior Return < 0
Prior Ret. x (Prior Ret < 0)
-0.05
0.47
0.42
(-0.15)
(1.35)
(1.24)
-0.15
9.44
7.99
(-0.02)
(1.23)
(1.00)
-0.14
-0.82
-0.77
(-0.29)
(-1.63)
(-1.51)
Year-fixed effects
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Adj. R2
0.13
0.15
0.18
0.10
0.13
0.14
0.09
0.12
0.10
70
70
70
66
67
70
70
66
66
n
Table 14: OLS Regressions of Announcement Abnormal Returns - Placings (2003-2007)
This table shows the results from OLS regressions of cumulative abnormal returns (CARs) on the listed
explanatory variables. T-statistics are in brackets, and are calculated using White standard errors. Variables are
defined in Appendix 1.
Placings
Intercept
DISC
UNDERWRIT
OP/MV
LOGMV
M&A Flag
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
10.83
10.79
15.36
10.37
3.43
9.99
7.38
7.48
-0.56
(2.95)
(2.94)
(2.23)
(2.36)
(0.80)
(2.68)
(1.75)
(1.10)
(-0.11)
-0.30
-0.30
-0.31
-0.26
-0.32
-0.31
-0.30
-0.29
-0.28
(-2.62)
(-2.62)
(-2.67)
(-2.05)
(-2.69)
(-2.64)
(-2.52)
(-2.20)
(-2.10)
-3.09
-3.45
-2.75
-2.53
-3.41
-3.31
-3.13
-2.94
-3.00
(-0.88)
(-0.93)
(-0.76)
(-0.67)
(-1.03)
(-0.92)
(-0.90)
(-0.80)
(-0.81)
4.26
4.38
4.33
2.10
8.59
5.11
5.98
8.68
8.00
(0.49)
(0.51)
(0.49)
(0.31)
(0.92)
(0.58)
(0.67)
(1.11)
(1.04)
-1.18
-1.15
-1.24
-1.06
-0.49
-1.02
-1.00
-0.17
-0.14
(-2.94)
(-2.69)
(-3.15)
(-2.57)
(-0.99)
(-2.31)
(-2.27)
(-0.29)
(-0.24)
1.10
1.16
1.05
1.10
1.59
1.45
1.54
2.31
2.25
(0.73)
(0.77)
(0.71)
(0.74)
(1.07)
(0.95)
(1.07)
(1.64)
(1.51)
LIBOR-OIS
0.02
-0.02
(0.23)
(-0.33)
VIX
-0.22
-0.42
(-0.75)
(-1.48)
Debt-to-Equity
FINANCIAL x D-E
FINANCIAL
Book-to-Market
Negative EBIT
Neg. EBIT x FINANCIAL
-3.10
-4.04
-3.95
(-1.55)
(-1.82)
(-1.81)
5.76
7.45
7.13
(1.74)
(2.10)
(1.99)
-7.27
-7.71
-7.70
(-2.07)
(-2.07)
(-2.06)
2.78
4.57
4.47
(1.05)
(2.05)
(1.92)
-1.61
-3.04
-3.03
(-0.81)
(-1.58)
(-1.53)
23.79
20.01
20.57
(2.74)
(2.35)
(2.43)
Bid-Ask Spread
Idio. Vol.
10.97
18.56
20.48
(0.44)
(0.67)
(0.68)
1.31
1.49
1.28
(1.41)
(1.47)
(1.28)
2.92
3.81
3.35
(0.61)
(0.85)
(0.75)
-0.02
-0.03
-0.02
(-1.53)
(-1.90)
(-1.79)
Industry Issuance Ratio
IIR x Offer Proceeds
Prior Return
Prior Return < 0
Prior Ret. x (Prior Ret < 0)
0.24
0.22
0.22
(1.24)
(1.07)
(1.04)
0.68
1.00
1.28
(0.33)
(0.47)
(0.62)
-0.40
-0.31
-0.32
(-1.52)
(-1.06)
(-1.08)
Year-fixed effects
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Adj. R2
0.05
0.04
0.04
0.08
0.07
0.04
0.05
0.11
0.10
n
189
189
189
188
188
189
189
187
187
Table 15: OLS Regressions of Announcement Abnormal Returns - Placings (2008-2012)
This table shows the results from OLS regressions of cumulative abnormal returns (CARs) on the listed
explanatory variables. T-statistics are in brackets, and are calculated using White standard errors. Variables are
defined in Appendix 1.
Placings
Intercept
DISC
UNDERWRIT
OP/MV
LOGMV
M&A Flag
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
-7.56
-8.98
-8.45
-2.73
-13.43
-7.21
-10.49
-9.97
-11.11
(-1.58)
(-1.76)
(-1.52)
(-0.47)
(-2.54)
(-1.54)
(-2.04)
(-1.53)
(-1.75)
-0.24
-0.23
-0.23
-0.23
-0.25
-0.25
-0.24
-0.28
-0.27
(-2.86)
(-2.82)
(-2.83)
(-2.79)
(-3.06)
(-3.01)
(-2.91)
(-3.40)
(-3.37)
8.98
8.88
9.01
8.77
8.98
9.32
8.63
8.34
8.31
(2.40)
(2.36)
(2.41)
(2.37)
(2.45)
(2.54)
(2.25)
(2.30)
(2.30)
5.84
5.82
5.71
8.02
6.41
6.04
6.33
9.17
9.24
(1.47)
(1.45)
(1.40)
(1.87)
(1.70)
(1.51)
(1.58)
(2.24)
(2.26)
-0.36
-0.38
-0.37
-0.67
0.31
-0.28
-0.18
0.06
0.03
(-1.01)
(-1.06)
(-1.02)
(-1.47)
(0.65)
(-0.75)
(-0.49)
(0.11)
(0.06)
-0.87
-0.74
-0.83
-1.78
-0.42
-0.93
-0.30
-1.00
-0.86
(-0.49)
(-0.42)
(-0.47)
(-0.99)
(-0.24)
(-0.52)
(-0.17)
(-0.56)
(-0.49)
LIBOR-OIS
0.01
0.01
(0.66)
(0.49)
VIX
0.03
-0.01
(0.30)
(-0.07)
Debt-to-Equity
FINANCIAL x D-E
FINANCIAL
Book-to-Market
Negative EBIT
Neg. EBIT x FINANCIAL
-0.29
-0.40
-0.41
(-0.30)
(-0.42)
(-0.43)
-0.48
0.08
0.08
(-0.45)
(0.08)
(0.08)
0.62
2.78
2.85
(0.32)
(1.35)
(1.37)
-1.22
-1.90
-1.98
(-0.77)
(-1.22)
(-1.27)
-3.91
-5.25
-5.17
(-1.73)
(-2.30)
(-2.25)
-0.55
-0.11
-0.31
(-0.15)
(-0.03)
(-0.08)
Bid-Ask Spread
Idio. Vol.
16.20
15.53
15.34
(1.09)
(1.06)
(1.04)
0.55
0.75
0.75
(1.64)
(1.97)
(1.97)
-4.78
-6.29
-6.18
(-1.20)
(-1.55)
(-1.52)
-0.01
-0.01
-0.01
(-0.88)
(-0.63)
(-0.62)
Industry Issuance Ratio
IIR x Offer Proceeds
Prior Return
Prior Return < 0
Prior Ret. x (Prior Ret < 0)
0.22
0.31
0.31
(1.37)
(1.88)
(1.87)
0.63
0.74
0.73
(0.27)
(0.31)
(0.30)
-0.32
-0.42
-0.41
(-1.34)
(-1.75)
(-1.74)
Year-fixed effects
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Adj. R2
0.07
0.07
0.07
0.06
0.08
0.07
0.07
0.08
0.08
n
248
248
248
243
248
248
248
243
243
Table 16: Constrained Market Hypothesis - Additional Test
This table presents univariate analyses of our constrained market hypothesis. For issuances with offer proceeds
greater than the overall sample mean of offer proceeds, we categorise issues into either FIRST MOVER
category or FOLLOWER category, depending on the SUMPRIOR variable for each issue, relative to a cut-off
value. SUMPRIOR is the sum of offer proceeds for peer firms (same 1-digit SIC code) over the 3 months prior
to announcement. e.g. if SUMPRIOR for a particular issue is greater than the cut-off (see column heading), it is
classified as a FOLLOWER.
SUMPRIOR
0
£100m
£200m
First Movers
Total
RI&RIP (%)
OO&OOP (%)
Placings (%)
6
66.7%
0.0%
33.3%
30
53.3%
10.0%
36.7%
34
52.9%
8.8%
38.2%
Disc (mean)
Disc (median)
CAR (mean)
CAR (median)
34.7%
42.4%
2.2%
-0.8%
26.4%
24.2%
-1.4%
-1.6%
25.7%
19.9%
-1.7%
-2.7%
Proceeds (mean)
Proceeds (median)
Firm size (mean)
Firm size (median)
2780
807
10760
6127
1174
424
8634
2849
1069
403
7891
2605
Followers
Total
RI&RIP (%)
OO&OOP (%)
Placings (%)
75
45.3%
21.3%
33.3%
51
43.1%
25.5%
31.4%
47
42.6%
27.7%
29.8%
Disc (mean)
Disc (median)
CAR (mean)
CAR (median)
26.8%
24.1%
-9.3%
-5.6%
27.9%
28.6%
-12.6%
-7.1%
28.6%
32.7%
-13.3%
-7.1%
1636
450
8289
2643
2043
501
8377
2985
2193
584
8893
3191
0.533
0.179
0.128
0.031
0.814
0.036
0.841
0.663
0.540
0.041
0.201
0.466
Proceeds (mean)
Proceeds (median)
Firm size (mean)
Firm size (median)
Mann-Whitney test p-value
Disc
CAR
Proceeds
Firm size